Ontario – Stay motion denied: case was a proper one for summary judgment, but summary judgment not sought – #538

In Jencel 407 Yonge Street Inc. v. Bright Immigration Inc., 2021 ONSC 6030, Justice Akbarali dismissed the Defendant’s motion to stay the action in favour of arbitration. The Plaintiff argued that the stay motion should be dismissed because the action was a proper one for summary judgment, relying upon s. 7(2)5 of the Arbitration Act, 1991, S.O. 1991, c. 17. Justice Akbarali agreed. The key facts were uncontested and the Defendant’s position in the action, which consisted mostly of “bald assertions and unarticulated legal and factual arguments”, did not give rise to any genuine issue requiring a trial. However, the Plaintiff did not move for summary judgment.

On October 11, 2017, the Plaintiff landlord and the Defendant tenant entered into a commercial lease for premises in the city of Toronto. The term of the lease began on November 1, 2017 and was to expire on December 31, 2022. However, because of the COVID-19 pandemic, the tenant was unable to meet its rent obligations and the parties began negotiations for the termination of the lease. They could not reach agreement.

The Plaintiff landlord brought an action seeking amounts it claimed were owing to it under the lease, comprised of arrears of base rent and additional rent, three months’ accelerated rent, a restoration of the security deposit, interest and payment of costs, together with all future accruing amounts under the lease. The landlord made no attempt to take possession of the leased premises, but rather elected to treat the lease as ongoing.

The Defendant tenant served, but did not file, a Notice of Intent to Defend the action, and then brought this motion to stay the action on the basis of the arbitration agreement contained in the lease. The tenant also commenced an arbitration.

The Defendant tenant sought a stay of the action in favour of arbitration. The Plaintiff landlord opposed the stay on the ground that the case was a proper one for summary judgment.

Justice Akbarali noted the mandatory language in s. 7(1) of the Arbitration Act, 1991, S.O. 1991, c. 17. It provides that if a party to an arbitration agreement commences an action in respect of a matter to be submitted to arbitration under an arbitration agreement, the court shall, on the motion of another party to the arbitration agreement, stay the action. However, s. 7(2)5, provides for limited exceptions – the court may refuse a stay in certain circumstances, including where “the matter is a proper one for default or summary judgment”.

Justice Akbarali found that, unless s. 7(2)5 applied, there was no doubt that the action must be stayed. In so doing, she relied upon the five-part framework established by the Ontario Court of Appeal in Haas v. Gunasekaram, 2016 ONCA 744, at para. 17, to determine that the requirements for a stay under s. 7(1) were met.

She then relied upon the decision of MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656, at paras. 36-37, for the proper approach to s. 7(2):

“[17]… Feldman J.A., for the court, held that one must consider the purpose of s. 7(2) when considering whether to allow litigation to proceed in the face of an arbitration clause. The exceptions s. 7(2) creates to a stay of litigation in favour of arbitration all arise where it would be unfair or impractical to refer the matter to arbitration. She held that a case is appropriate for summary judgment where there are no genuine issues for trial. MDG was decided prior to Hryniak v. Mauldin, 2014 SCC 7. Given the changes to the threshold for summary judgment in r. 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and the Court’s decision in Hryniak, I conclude that litigation may only be allowed to proceed in the face of an arbitration clause where the case is a proper one for summary judgment because there are no genuine issues requiring a trial.”

Therefore, the issue was whether the Plaintiff landlord had established that there was no genuine issue requiring a trial under Rule 20 of the Ontario Rules of Civil Procedure to avoid the stay.

Justice Akbarali considered the two main issues raised in the Defendant tenant’s Notice of Arbitration, arrears of rent and mitigation, and the evidenced adduced by the Defendant tenant on the stay motion. She noted that there was no dispute between the parties about the history of discussions between them.

She concluded that claims relating to the tenant’s obligation to pay arrears of additional rent did not require a trial and could properly be resolved on a summary judgment motion because: there appeared to be no dispute about the accuracy of the Plaintiff landlord’s calculation of additional rent; the tenant’s responsibility to pay the additional rent was a question of contract interpretation; and the tenant had failed to articulate any factual or legal argument to explain why it was not liable for arrears of base rent.

Similarly, mitigation was not a genuine issue requiring a trial because the tenant had failed to articulate why the landlord had a duty to mitigate or what the landlord ought to have done to mitigate. The tenant failed to meet the landlord’s argument that there was a body of case law that indicates that a landlord may elect to treat the lease as ongoing after an event of default, in which case the landlord has no duty to mitigate

For these reasons, Justice Akbarali ruled that she was exercising her discretion to dismiss the Defendant tenant’s motion to stay the action in favour of arbitration because the case was a proper one for summary judgment.

Editor’s notes:

First, in conducting her analysis, Justice Akbarali relied not only on the evidence adduced and legal argument made by the Defendant tenant, but, because she found the tenant’s position unclear, reviewed the full record and speculated on the evidence and grounds that could support the Defendant tenant’s position that a stay should be ordered. Despite all of that, she found that the case was a proper one for summary judgment; the Defendant tenant’s claims raised no genuine issue requiring a trial. Presumably, had the summary judgment motion been before her, she would have granted judgment in favour of the Plaintiff landlord, which may not have been an outcome foreseen by the Defendant when it initiated its stay motion.

Second, Justice Akbarali made the following comments about process at paragraph 35:

“Although not determinative of my decision, I also note that the arbitration provision in the lease is onerous, in that it requires three arbitrators, which seems an unnecessary and disproportionate expense for the parties in the context of this dispute. This factor lends support to my conclusion that arbitration is an impractical alternative in the circumstances.”

The policy underlying s. 7(2)5 is that disputes should be resolved in the most just, expeditious manner. In some cases, this may be by summary judgment. The idea is to avoid a referral of the dispute to arbitration where it is not necessary. In this case, even though the Plaintiff landlord opposed the Defendant tenant’s stay motion on the basis that it was, instead, entitled to summary judgment as against the Defendant tenant, it did not actually bring a summary judgment motion. Therefore, the action will continue. It may be argued that the two-stage process chosen by the Plaintiff was in itself cumbersome and expensive.

See, for example, Korn/Ferry Canada Inc. v. Rosen, 2016 ONSC 2135; leave refused 2016 ONSC 4535, in which the Plaintiff resisted the Defendant’s stay motion by bringing a summary judgment cross-motion, relying upon s. 7(2)5. The summary judgment motion was not successful and the stay was granted.

Third, section 7(2)5 seems problematic in that it defeats the parties’ intentions, expressed in their agreement, to arbitrate and is thereby inconsistent with party autonomy. It seems to contemplate a situation in which a Defendant brings a stay motion early on, before there is a full record, and a Plaintiff opposes the stay and seeks to proceed with the action on the ground that the case is a “proper one” for summary judgment. This seems to suggest that the Plaintiff need not meet the summary judgment test or satisfy the court that a summary judgment motion will be successful, but something less, such as that a motion for summary judgment would have a high prospect of success – in other words, that s. 7(2)5 is not being used tactically to avoid arbitration. But what if no summary judgment motion is ever brought? The result is that the Plaintiff has avoided arbitration and also has not been required to meet the summary judgment test. No efficiency is achieved. That cannot have been the intention of this statutory provision.

Third, contrast this decision from the recent Manitoba Court of Queens Bench decision in Wardrop v. Ericsson Canada Inc., 2021 MBQB 183, which is summarized at Case Note #535: MB –Broad arbitration clause in one agreement required stay of action based on related employment contract. For other recent Case Notes on this exception to the mandatory stay rule, see Case Notes: Ontario – court exercises discretion to refuse a stay not sought by defendants – #100, Alberta – court exercises contractual grant of discretion to refuse stay because proper for summary judgment – #201, Ontario – pleading to action insufficient to qualify as waiver to request stay – #209, Nova Scotia – absent summary judgment motion, stay declined if there is arguable case for summary judgment – #480 and Alberta – absent summary judgment motion, stay granted because summary judgment exemption is premature – #481.